Nov 2008 25

Tax hikes sound the death knell of ambition5

Grim_reaper It's hard enough at the moment to get into the job market, let alone to progress up the ladder. My folks always told me: if you work hard and want to succeed, you'll get your rewards. Turns out, that's not always the case.

In yesterday's Pre Budget Report, Alistair Darling announced measures that will not only penailse all those earning anything above £20,000, but discourage everyone from working harder (or in some cases working at all) and achieving higher position and wages. He has truly become the grim reaper, sounding the death knell of British ambition.

Let's start with the obvious one: increasing the top level of tax to 45% for all those earning more than £150,000. Now, at first glance, this may just look like a tax on the super-rich, many of whom contributed to the age of financial hedonism that got us into this mess. The Government says it will raise £2 billion from this move, so where's the harm?

The harm is here: the Government's calculations on the revenue this will raise are over-simplistic and, ultimately, wrong. They are based on the assumption that there will be the same number of people in this tax bracket in a couple of years as there are now. With City workers being sacked and taking pay cuts across the board, it is safe to assume there will be nowhere near the high earners to contribute by the time this comes into force after the next general election. Both the CEBR and the IFS estimate that the tax take for this step will be closer to £400 million, but the damage it will do in terms of the loss of fringe benefits such as auxillary job creation and investment will far outstrip this gain.

More importantly, however, is the message this sends. You would think, with the global economic situation, that Britain would be doing all it can to gain the competitive edge, attract investment and show the corporations of the world that this is where they will get the best deal. We want their investment, and in return we should show them that we are business friendly, that we encourage success and excellence in all its forms. But what the Government are doing is trying to score political points by being seen to punish the high earners, with no meaningful consequences other than damaging loss of investment.

But it's not just the high earners, anyone on over £20,000 will lose out from this budget. National Insurance, it was announced yesterday, will rise by half a per cent on incomes over £20,000. So if you're currently on £18,000, and that promotion you've been working for is just around the corner, by the time you are popping the champagne, you'll get less money in your pocket. This will add a total of £20 billion to National Insurance, at a time when families are struggling more than ever to make ends meet.

A much better, fairer soltuion would have been to raise the income tax threshold, thereby helping everybody and proportionately helping the poorest most. Importantly, this would increase the incentive to get into work – with social welfare costs rising and set to rise further, the Government should be doing all it can to get people off benefits and into work – giving them more money in their pockets is the best way to do this. 

These measures affect people all the way up. They punish aspiration, hard work and ambition, three things that not only are in short supply in this country, but that will become ever more important as the economic crisis deepens. 

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  • Steve Robson

    What a load of nonsense. You don’t believe people in the public sector need higher rates of pay as an incentive, but if any of your “prominent supporters” lose as little as 5p in the £ of everything they earn over £150K, then suddenly they’ll never make any effort again. Like they can’t afford it!
    The right have talked this twaddle for years and while it may be true at punitive rates like 80%, its rubbish at these levels. No-one will turn down a pay rise from £140K to £160K because they have to pay 5p extra tax on half that increase. And no-one who wants to aim to earn over £150K will be put off by this measure and decide to clean toilets instead.
    Personally, I’d rather he increased the top rate to 50% at £100k, even though that would effect me, but the 0.5% on NI is not too bad either; its got to come from somewhere.
    You do have the looks Susie, but in the words of Shania Twain, you don’t have the talk.

  • Tim

    Hey steve,
    …’lose as little as 5p in the £’.. – that’ll be ANOTHER 5p in the pound. Just because somebody is comfortably keeping their head above water is no reason to steal their hard-earned cash. And after all, ‘as little as 5p’ more every time sounds like a distinctly slippery slope, setting an unpleasant precedent, particularly when combined with higher NI payments (and I thought that 11% was meant for our health and unemployment cover!) and higher duty.
    You’re welcome to throw away your cash to be wasted by the government, but, yet again, don’t try to force anyone else to do the same.

  • http://aless.co.uk Alessandre Bieri

    It’s not just 5p in the pound, it’s 45p in income tax, plus another 15% (maybe becoming 18.5%) in VAT when they actually spend the money, plus more national insurance than before etc, which adds up.
    Sure people won’t turn down £150k salaries because of it but they may well turn down the opportunity to do an extra £50k’s worth of work if they’re only going to take home £20k of it.

  • Steve Robson

    She is a good looking chick for a tory though.

  • helen

    This has also been happening since the introduction of the Tax Credit system, at my firm overtime would usually only be worked by those without children because of the hassle of repayments so young single migrant workers became popular. What many others did was take unpaid leave to keep under the various threshholds.